From: AlanBaggett@volcanomail.com   
      
   How the wealthy reduce the Canada Revenue Agency's take : CRA SOTW   
      
   JOEL SCHLESINGER  -  Special to The Globe and Mail -   September 19, 2017    
      
   The math is simple. The more money you make, the more taxes you pay.   
      
   For the nation's highest-income earners – those making more than $220,000   
   annually – the amount going to the tax man is significant.   
      
   "Some are left with less than 50 cents on the dollar of what they earn,   
   depending on where they live in Canada," says Evelyn Jacks, author of several   
   books on tax management, including Essential Tax Facts.   
      
   That said, Ms. Jacks adds that "it is the right of Canadians of all income   
   levels to arrange their affairs – within the framework of the law – to   
   take advantage of all the tax strategies available."   
      
   These tax strategies can provide the most tax-savings bang for incoming bucks,   
   especially for those of high net worth.   
      
   Make a loan to your spouse   
      
   To reduce the impact of tax on passive income from investments, couples can   
   spread the wealth around using a loan, whereby a high-income spouse lends   
   money to the low-income spouse for investment purposes.   
      
   It is pretty straightforward, says Vickie Campbell, a certified financial   
   planner with Ryan Lamontagne Inc. in Ottawa. "The borrowing spouse invests the   
   money and pays interest back to the spouse who lent the money."   
      
   Both have to declare the interest, but the lower-income spouse can deduct the   
   interest cost against income because it's being used to invest, providing the   
   money is in a non-registered, taxable account producing income, such as   
   dividends.   
      
   At the same time, the income generated from the invested money is taxed at a   
   lower rate than it would be in the hands of the higher-earning spouse. Ms.   
   Campbell adds that higher-earning spouses have to declare the interest   
   earnings. But given that the    
   Canada Revenue Agency's prescribed rate for loans of this nature is 1 per   
   cent, the impact should be less than the taxes that would be owing if   
   high-income-earning spouses were to invest the money themselves.   
      
   More income sources are better than one   
      
   Diversification is the hallmark of good investing. It's also a key strategy   
   for managing income tax efficiently. As well, just like investing, an early   
   start is a good start.   
      
   "The sooner you start to diversify your income sources and think about how   
   you're going to use current tax preferences to reduce the taxes you pay when   
   you are wealthy, the better a position you will be in in the future because   
   your money will be in the    
   right buckets," Ms. Jacks says.   
      
   The main thrust here is that not all earnings are taxed at the same rate.   
   Dividends and capital gains, earned outside of a registered account, are taxed   
   more favourably than income from interest, employment, pensions and   
   disbursements from RRSPs and    
   registered retirement income funds (RRIFs).   
      
   Over the long term, individuals can build substantial, taxable-investment   
   accounts generating dividends and capital-gains income that can be layered on   
   top of fully taxable income from pensions and RRSPs. This not only reduces the   
   tax burden, it also    
   helps reduce the impact of clawbacks to Old Age Security, Ms. Jacks says.   
      
   Another possible source of income is life insurance. The strategy here is   
   individuals can purchase a whole life insurance policy to create a tax-free   
   wealth source for their estate. The premiums can be high, but the benefits can   
   be used to cover taxes on    
   other assets.   
      
   Go corporate   
      
   For business owners, incorporating offers tax efficiencies, including a   
   lifetime capital-gains exemption when selling the shares of the corporation,   
   or qualified farm or fishing property.   
      
   "For professional and other entrepreneurs with high incomes, incorporating is   
   definitely a good strategy, but some aspects are a wait-and-see game with the   
   pending rule changes," Ms. Campbell says.   
      
   Among the manoeuvres under review is "income sprinkling," whereby earnings   
   from the corporation are split among the business owner, a spouse and adult   
   children to reduce the overall tax burden.   
      
   One advantage that will remain in place, however, is the Individual Pension   
   Plan (IPP). "Contributions are deductible by the operating company, and income   
   accumulates tax-free in the plan until benefits are paid to the owner as   
   pension income," says    
   Cynthia Kett, an accountant and financial advisor with Stewart & Kett   
   Financial Advisors in Toronto. Also, its income is eligible for income   
   splitting.   
      
   Use basic tax shelters   
      
   While it's tempting to imagine the wealthy hiding their money offshore to   
   shelter it from Canadian taxes, the real – and legal – tax shelters exist   
   in plain sight. Among them are registered retirement savings plans (RRSPs),   
   registered education    
   savings plans (RESPs), registered disability savings plans (RDSPs, for   
   families with loved ones with disabilities) and even tax-free savings accounts   
   (TFSAs). And they're available to all Canadians, wealthy or not.   
      
   It's just that high-income earners have more cash available to put in these   
   vehicles. The RRSP is the go-to account, allowing deferral of taxes owing on   
   contributed income today until retirement when, presumably, that money would   
   be withdrawn at a lower    
   tax rate.   
      
   The immediate savings are considerable. For 2017, the maximum annual   
   contribution is more than $26,000.   
      
   "So you could be getting more than 50 per cent of your contribution back as a   
   refund, and that's enough to fund two TFSAs," Ms. Jacks says. While the RRSP   
   is the "first line of defence" for reducing taxes, remaining cash can then go   
   toward maximizing    
   contributions to the other tax-preferred investment vehicles.   
      
   Earn credit for charitable donations   
      
   For wealthy individuals, donations can help reduce taxes, thanks to a credit   
   (applicable only against taxes owing or paid) that becomes more meaningful   
   beyond gifts of $200 a year.   
      
   Generally speaking, the credit almost doubles from 15 per cent in tax savings   
   for every dollar donated (up to $200) to 33 cents on the dollar for money   
   donated above that amount.   
      
   Wealthy individuals and families often donate larger amounts, resulting in   
   significant tax savings, says Ms. Kett.   
      
   "Ideally, large donation credits are claimed in high-income years because the   
   annual donation limit is tied to the income for the year of the taxpayer, or   
   the taxpayer's estate for deceased individuals," she says.   
      
      
   [continued in next message]   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)